FRS 102 is a single accounting standard that replaces existing Irish Generally Accepted Accounting Practice (Irish GAAP) for private companies and non-profit entities (and certain other entities) for accounting periods that commence on or after 1 January 2015.

This change means that for accounting periods ended 31 December 2015 and later, you will notice differences in measurement and presentation of certain items in a company's financial statements. Also some of the 2014 comparative items (already reported under the ‘old’ rules) will need to be re-presented in order to comply with the new rules.

Changes to the numbers

A company will need to be prepared for the changes arising on first implementation of FRS 102 because:

reported profits could change;

the balance sheet could be significantly affected, and

the financial statements will look different.

Opportunities on transition

There are also a number of once-off opportunities on first transition to the new rules that may be used in your favour but need to be specifically chosen and documented.

Reported profits could change

You will need to assess the impact of changes affecting reported profits and communicate in a timely manner with affected stakeholders including employees, shareholders, bankers and suppliers. Businesses that pay bonuses out of profit or have profit-related pay schemes, many need to check how the basis of these calculations may be affected.

Changes in the ‘fair value’ measurements of certain transactions will be reflected in the profit or loss for the period, which means that businesses will need to take more care when determining taxable profits. If paying a dividend, companies will need to ensure that dividends are only paid out of distributable profits.

Many more items will be included in financial statements at ‘fair value’ (instead of cost) with movements reflected in the profit and loss account and entities will need to establish whether their budgets and management accounts should show these movements or whether they will be dealt with as period end adjustments only.

The balance sheet position could be significantly affected

Changes in the recognition criteria of some assets and liabilities, as well as profits and losses on these items could have an impact on the credit rating of your business. Additionally, where bank loan covenants are calculated based on profit or balance sheet measures, the move to FRS 102 could have a negative impact on the headroom of those covenants. You will need to assess the impact of these changes on your balance sheet and communicate early to affected stakeholders.

The financial statements will look different

Your business will need to gather more information for the preparation of their financial statements from 1 January 2015. Clearly this will be on an on-going basis, but also, information will be needed at the date of transition which is 1 January 2014 for a business with a calendar year end.

Your business will also need to consider whether your current systems and software are sufficient to prepare accounts under the new Irish GAAP.

Opportunities on transition

There are 18 optional exemptions that are only available at the transition date. Transition options will need careful consideration on an individual company by company basis. The transitional provisions in FRS 102 could have a significant effect on your financial statements, especially on numbers previously reported which will need to be reconciled to those already reported under the ‘old’ Irish GAAP measurement rules.

We will also need to reconcile the taxation effects of the changes so that we can ensure that your tax position is no worse than was the case under the old rules. Certain rules were inserted in the Finance Act 2014 to ensure this is the case and we want to avail of them, where possible.

Choosing the best options for any business will need careful thought and together we will need to weigh up the implications for your business, both now and in the future.

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